Consolidating Debt Into a Mortgage

Although having some debt is good for your credit score, if you're overwhelmed by your monthly bills that's not a good position to be in and you need to take action. The question is what type of action should you take. One of the best ways to handle the situation is to consolidate that debt.

Why Consolidate?

When you consolidate your debt, you are essentially rolling those balance into a single debt that requires only one – not numerous – monthly payments. Obviously paying just one credit a month is easier than sending checks to a dozen or more but that's only one small part of the benefits of debt consolidation.

Benefit: Save Money

Before you make the decision to consolidate your debt, you need to use a debt consolidation calculator to determine how much you could potentially save if you did. You're likely to be surprised at the results.

If you're wondering why you've saved money when you still owed the same amount of money, the answer is that you do not owe the same amount of money. You see, one of the biggest problems with most people's debt is the high interest credit cards. If you're only paying the minimum monthly payment, you could end up spending more than four decades trying to pay them off completely.

When you consolidate your debt, however, you will be paying off those balances sooner which will save you an intense amount of interest.

While you're almost guaranteed to save money in the long run through debt consolidation, your monthly payments should also be reduced.

Benefit: Tax Reduction

While a debt consolidation calculator can show you how much you'll save, it will not take into account one factor: the tax benefits of refinancing your mortgage. Most homeowners are eligible to deduct the interest they pay on their mortgages from their federal taxes. That can significantly reduce their tax liability at the end of the year.

Credit card debt, on the other hand, does not offer any tax advantages. You simply pay and pay on them without really making a dent in the principal. At least, if you owe the money and are repaying the debt, you should reap some type of reward which you will if you consolidate the debt.

Benefit: Improve Credit Score

Another advantage of debt consolidation is that it makes it easier for you to begin improving your credit score. All of that debt takes its toll quickly and can cause your score to drop fast, especially if you've made late payments or missed them altogether or if you've maxed out most of your credit limits.

Repaying that debt will not magically increase your credit score, however. You will be able to begin using those credit cards more responsibly. For example, you can begin maintaining a balance below 30% of the total credit limit. You can also prevent the closure of important credit accounts – those you've had the longest – which would have a detrimental effect on your credit score.

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